Wilmington, DE, January 29, 2008 - Hercules Incorporated today reported net income for the quarter ended December 31, 2007 of $28.5 million, or $0.25 per diluted share, as compared to net income of $242.1 million, or $2.14 per diluted share, for the fourth quarter of 2006. The fourth quarter of 2006 included $242 million of one-time tax benefits.
Net income for the year ended December 31, 2007 was $178.9 million, or $1.56 per diluted share, as compared to net income of $238.7 million, or $2.14 per diluted share, in 2006.
Net income from ongoing operations(1) for the fourth quarter of 2007 was $35.0 million, or $0.31 per diluted share. Net income from ongoing operations for the fourth quarter of 2006 was $34.8 million, or $0.31 per diluted share, including $0.04 of land sales and $0.04 in favorable tax rate impacts. The fourth quarter 2006 ongoing tax rate was 19%, whereas the ongoing tax rate was 29% in the fourth quarter of this year.
Net income from ongoing operations(1) for the year ended December 31, 2007 was $169.9 million, or $1.48 per diluted share, an increase of 20% per diluted share versus 2006.
Cash flow from operations for the year ended December 31, 2007 was $299.9 million, an increase of $127.0 million as compared to the prior year.
Net sales in the fourth quarter of 2007 were $540.7 million, an increase of 9% from the same period last year. Sales increased due to 6% higher volume and 5% favorable rates of exchange, partially offset by unfavorable mix of 2%. Pricing in the aggregate was flat. Net sales for the year ended December 31, 2007 were $2.136 billion, an increase of 9% as compared to 2006, excluding the impact of the FiberVisions transaction.
Net sales in the fourth quarter of 2007 increased in all regions of the world. Sales increased 1% in North America, 14% in Europe (3% excluding the strong Euro), 38% in Latin America and 17% in Asia Pacific as compared to the same period last year.
Reported profit from operations in the fourth quarter of 2007 was $56.9 million, an increase of 6% compared with the same period in 2006. Profit from ongoing operations(1) in the fourth quarter of 2007 was $68.9 million, an increase of 10% compared with $62.7 million in the fourth quarter of 2006. Excluding land sales, profit from ongoing operations increased 21% from the fourth quarter of 2006.
"We continue to demonstrate strong growth in revenue, earnings per share and cash flow," commented Craig A. Rogerson, President and Chief Executive Officer. "Our employees, along with our global market leadership and strong innovation, continue to drive solid results."
During the quarter, the Company purchased 1.65 million shares of common stock for a cost of $31.6 million. To date, the Company has purchased 3.0 million shares for $58.0 million under its $200 million share repurchase authorization.
Interest and debt expense was $16.6 million in the fourth quarter of 2007, down $0.5 million compared with the fourth quarter of 2006. Interest expense for the year ended December 31, 2007 was $68.6 million, a decrease of $2.6 million from 2006.
Net debt, total debt less cash and cash equivalents, was $679.5 million at December 31, 2007, a decrease of $144.2 million from year-end 2006.
Capital spending was $40.5 million in the fourth quarter and $118.3 million in 2007. This compares to $44.4 million and $93.6 million in the fourth quarter and year 2006, respectively. The increase in capital expenditures was primarily for growth projects including expanded production capacity.
The Company completed the transition of its U.S. defined benefit pension plan to a liability driven investment strategy in 2007. The assets of the plan were transitioned from a portfolio that had a strong equity bias, to one where greater than 80% of the assets are invested in fixed income securities. The funding level improved from 90% at the end of 2006 to 96% at the end of 2007 on a projected benefit obligation basis.
Segment Results – Reported Basis
In the Aqualon Group, net sales increased 16% and profit from operations increased 5% in the fourth quarter as compared with the fourth quarter of 2006.
All Aqualon business units had increased sales in the fourth quarter as compared to the prior year. In the aggregate, the sales increase was driven by 14% higher volume (12% excluding an acquisition), 1% increased pricing and 4% favorable rates of exchange partially offset by 3% unfavorable mix.
"We continue to show strong growth outside of North America, more than offsetting the challenging conditions experienced in this region," commented Mr. Rogerson. "We made significant progress with our expanded methylcellulose capacity in China. While we experienced a setback due to an incident at the facility in January, we expect to meet customer orders and resume operations during the first quarter and be able to support the growing demand in the Asia Pacific region and other fast growing markets," noted Mr. Rogerson.
Coatings and construction sales increased 22% (or 17% excluding an acquisition) in the fourth quarter of 2007 as compared to the same period of last year, primarily due to 21% higher volume (16% excluding an acquisition), 1% increased pricing and 7% favorable rates of exchange, partially offset by 7% unfavorable mix.
Coatings sales increased 26% (or 18% excluding an acquisition) compared to last year with increases in all major regions of the world except North America. Sales increased in Europe by 32%, Asia Pacific by 19% and Latin America by 77%. North America was up 14%, but down 11% versus the fourth quarter of 2006, excluding the impact of an acquisition.
Sales into construction markets were up 20% globally (12% from volume) compared to the prior year. Strong growth in Asia, Europe and Latin America offset a decline in North America. Asia sales growth of 34% reflected the improved operability of our methylcellulose joint venture in China. The facility ran at near capacity during the latter part of the fourth quarter.
Regulated Industries sales increased 6% in the fourth quarter of 2007 as compared to the same period of last year, primarily due to a 4% favorable mix, and 3% favorable rates of exchange, partially offset by 1% lower volume. Pricing was flat in the aggregate. The improved sales mix reflects a higher portion of sales in the higher priced pharmaceutical and personal care markets. Volume was lower in the aggregate as growth achieved in Europe and China was offset by declines in North America.
Energy & Specialties sales increased 18% in the fourth quarter of 2007 as compared to the same period of last year. The increase was due to 16% higher volume and 2% favorable rates of exchange. Pricing and mix were flat from 2006. Specialty volumes increased 30% and oilfield volumes increased 2%.
Aqualon Group's profit from operations for the fourth quarter of 2007 increased $1.9 million due to higher volume and the associated contribution margin and increased pricing, partially offset by higher raw material, utility and severance and exit costs and lower gains on land sales. Raw materials were $3.1 million higher than the prior year, partially offset by increased selling prices of $1.4 million versus the prior year. Margins were adversely impacted due to start up costs associated with our CMC expansion in China and changes in VAT treatment associated with export sales from China. Selling, general and administrative (SG&A) costs were flat from the prior year reflecting increased sales and marketing, business management, and technology costs incurred to support growth initiatives offset by lower corporate support costs. Severance and exit costs, primarily associated with our business infrastructure project, were $1.5 million in the fourth quarter of 2007, while severance costs in the prior year's fourth quarter were $0.1 million. Gain on sale of excess land at operating sites was $0.8 million in the quarter, lower than the $3.6 million recorded in the fourth quarter of the prior year.
In the Paper Technologies and Ventures Group ("PTV"), net sales in the fourth quarter increased 4% and profit from operations increased 4% compared with the same quarter of 2006.
Paper Technologies sales increased 3% primarily due to 6% favorable rates of exchange, partially offset by an unfavorable mix of 2% and lower pricing of 1%. Volume in the aggregate was flat as compared to the prior year. Volume growth was achieved in the Americas and Europe, whereas Asia was lower. Price increases were achieved in North America, while pricing was lower in both Europe and Asia.
Venture sales increased 8% primarily due to 1% higher volume, 4% higher price and 4% favorable rates of exchange, partially offset by 1% unfavorable mix. Sales increased in most of the Venture businesses, while pricing increased across all of Ventures. The unfavorable mix reflects higher sales of lower priced building adhesives and tolled products.
PTV’s increased profit from operations reflects favorable rates of exchange, lower SG&A costs and increased pricing (Ventures offsetting Paper Technologies), partially offset by higher raw material, severance and other exit costs, and an unfavorable product mix. Also, gains on land sales were $2.9 million in the fourth quarter of 2006. Price increases were $0.4 million in the aggregate, whereas raw material cost increases were $3.0 million. Severance, restructuring and other exit costs in the fourth quarter of 2007 were $3.2 million as compared to $2.3 million in the same period of 2006. SG&A costs were lower than the prior year primarily due to lower bad debt, incentive accruals and corporate support costs, partially offset by increased legal and personnel costs.
"Strong performance in the Americas helped offset weaker European and Asian performance. Our success with new product launch and emphasis on productivity improvement continue to support overall margins," commented Mr. Rogerson.
Outlook
"We remain confident in our growth strategy and expect to continue to deliver double-digit ongoing EPS growth in 2008," said Mr. Rogerson. "Aqualon's increased capacities should support the demand for our products in growing global markets. PTV's margins are expected to be maintained and revenue grown through the continuation of its successful New Product Launch process and further penetration into emerging geographies and markets. The many actions taken in 2007 establish a solid foundation for continued success in 2008 and beyond."
HERCULES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data) (Unaudited)
| Table 1
|
THREE MONTHS
ENDED DEC. 31 |
TWELVE MONTHS
ENDED DEC. 31 |
|
2007 |
2006 |
2007 |
2006 |
| Net sales |
$540.7 |
$493.9 |
$2,136.2 |
$2,035.3 |
| Cost of sales |
365.5 |
325.8 |
1,405.7 |
1,343.4 |
| Selling, general and administrative expenses |
93.5 |
97.4 |
376.9 |
372.2 |
| Research and development |
11.4 |
10.5 |
43.8 |
38.8 |
| Intangible asset amortization |
2.6 |
1.8 |
8.7 |
7.2 |
| Other operating expense, net |
10.8 |
4.7 |
36.9 |
25.1 |
| Profit from operations |
56.9 |
53.7 |
264.2 |
248.6 |
| Interest and debt expense |
16.6 |
17.1 |
68.6 |
71.2 |
| Other expense, net |
1.4 |
30.9 |
44.3 |
174.2 |
| Income before income taxes, minority interests and equity loss |
38.9 |
5.7 |
151.3 |
3.2 |
| Provision (benefit) for income taxes |
16.9 |
(189.5) |
(20.3) |
(192.2) |
| Income before minority interests and equity loss |
22.0 |
195.2 |
171.6 |
195.4 |
| Minority interests in (earnings) loss of consolidated subsidiaries |
0.1 |
(0.6) |
(0.6) |
(1.4) |
| Equity loss of affiliated companies, net of tax |
(0.6) |
(1.1) |
(0.1) |
(3.2) |
| Net income from continuing operations before discontinued operations and changes in accounting principle |
21.5 |
193.5 |
170.9 |
190.8 |
| Net income from discontinued operations, net of tax |
7.0 |
48.6 |
8.0 |
47.0 |
| Cumulative effect of changes in accounting principle, net of tax |
— |
— |
— |
0.9 |
| Net income |
$28.5 |
$242.1 |
$178.9 |
$238.7 |
| Basic earnings per share: |
|
|
|
|
| Continuing operations |
$0.19 |
$1.72 |
$1.50 |
$1.72 |
| Discontinued operations |
0.06 |
0.43 |
0.07 |
0.42 |
| Cumulative effect of changes in accounting principle |
— |
— |
— |
0.01 |
| Net income |
$0.25 |
$2.15 |
$1.57 |
$2.15 |
| Weighted average # of basic shares (millions) |
113.5 |
112.4 |
114.3 |
110.8 |
| Diluted earnings per share: |
|
|
|
|
| Continuing operations |
$0.19 |
$1.71 |
$1.49 |
$1.71 |
| Discontinued operations |
0.06 |
0.43 |
0.07 |
0.42 |
| Cumulative effect of changes in accounting principle |
— |
— |
— |
0.01 |
| Net income |
$0.25 |
$2.14 |
$1.56 |
$2.14 |
| Weighted average # of diluted shares (millions) |
114.2 |
113.1 |
115.1 |
111.3 |
| Income before income taxes, minority interests and equity loss |
$38.9 |
$5.7 |
$151.3 |
$3.2 |
| Interest and debt expense |
16.6 |
17.1 |
68.6 |
71.2 |
| EBIT(1) |
55.5 |
22.8 |
219.9 |
74.4 |
| Depreciation and amortization, net of amortization of debt issuance costs |
27.8 |
23.3 |
108.1 |
94.2 |
| EBITDA(1) |
$83.3 |
$46.1 |
$328.0 |
$168.6 |
(Unaudited)
| Table 1 (continued)
Segment Data
(Dollars in millions) |
THREE MONTHS
ENDED DEC. 31 |
TWELVE MONTHS
ENDED DEC. 31 |
|
2007 |
2006 |
2007 |
2006 |
| Net Sales By Segment(2) |
|
|
|
|
| Paper Technologies |
$228.6 |
$221.3 |
$903.4 |
$845.7 |
| Ventures |
63.3 |
58.8 |
247.2 |
229.6 |
| Paper Technologies & Ventures Group |
291.9 |
280.1 |
1,150.6 |
1,075.3 |
| Coatings & Construction |
116.5 |
95.8 |
476.0 |
420.2 |
| Regulated |
59.9 |
56.5 |
241.6 |
225.3 |
| Energy & Specialties |
72.4 |
61.5 |
268.0 |
245.3 |
| Aqualon Group |
248.8 |
213.8 |
985.6 |
890.8 |
| FiberVisions |
— |
— |
— |
69.2 |
| Total |
$540.7 |
$493.9 |
$2,136.2 |
$2,035.3 |
| Profit (Loss) From Operations By Segment |
|
|
|
|
| Paper Technologies & Ventures Group |
$24.8 |
$23.8 |
$113.6 |
$80.8 |
| Aqualon Group |
42.8 |
40.9 |
199.0 |
187.4 |
| FiberVisions/Corporate |
(10.7) |
(11.0) |
(48.4) |
(19.6) |
| Total |
$56.9 |
$53.7 |
$264.2 |
$248.6 |
(Unaudited)
|
Table 2
Reconciliation to
Ongoing Operations |
THREE MONTHS
ENDED DEC. 31, 2007 |
THREE MONTHS
ENDED DEC. 31, 2006 |
(Dollars in millions,
except per share) |
Net
Income
(Loss) |
Diluted
EPS |
Profit
From
Operations |
EBITDA |
Net
Income
(Loss) |
Diluted
EPS |
Profit
From
Operations |
EBITDA |
| From Table 1 |
$28.5 |
$0.25 |
$56.9 |
$83.3 |
$242.1 |
$2.14 |
$53.7 |
$46.1 |
| Discontinued operations, net of tax |
(7.0) |
(0.06) |
— |
— |
(48.6) |
(0.43) |
— |
— |
| Vertac matters |
0.2 |
— |
— |
0.3 |
1.0 |
0.01 |
— |
1.5 |
| Asbestos reserve adjustment, net of insurance settlements |
(2.1) |
(0.02) |
— |
(3.2) |
13.0 |
0.12 |
— |
20.0 |
| Legal accruals and settlements(3) |
0.6 |
0.01 |
— |
1.0 |
3.1 |
0.03 |
0.1 |
4.8 |
| Severance and restructuring costs |
3.8 |
0.03 |
5.8 |
5.8 |
2.9 |
0.03 |
4.5 |
4.5 |
| Asset impairments/charges and accelerated depreciation |
2.2 |
0.02 |
3.5 |
— |
2.8 |
0.02 |
4.2 |
3.2 |
| Gain on debt prepayment and write-off of debt issuance costs |
— |
— |
— |
— |
(0.3) |
— |
— |
(0.5) |
| Gain on asset dispositions |
— |
— |
— |
— |
(0.9) |
(0.01) |
— |
(1.4) |
| Loss on sale of FiberVisions(5) |
— |
— |
— |
— |
2.6 |
0.02 |
— |
2.6 |
| Other(4) |
2.7 |
0.03 |
2.7 |
4.1 |
2.3 |
0.02 |
0.2 |
3.6 |
| Subtotal adjustment items(5) |
0.4 |
0.01 |
12.0 |
8.0 |
(22.1) |
(0.19) |
9.0 |
38.3 |
| Tax adjustment to the ongoing effective tax rate |
6.1 |
0.05 |
— |
— |
(185.2) |
(1.64) |
— |
— |
| Ongoing Operations(1) |
$35.0 |
$0.31 |
$68.9 |
$91.3 |
$34.8 |
$0.31 |
$62.7 |
$84.4 |
(Unaudited)
Table 3
Reconciliation to
Ongoing Operations |
TWELVE MONTHS
ENDED DEC. 31, 2007 |
TWELVE MONTHS
ENDED DEC. 31, 2006 |
(Dollars in millions,
except per share) |
Net
Income
(Loss) |
Diluted
EPS |
Profit
From
Operations |
EBITDA |
Net
Income
(Loss)( |
Diluted
EPS |
Profit
From
Operations |
EBITDA |
| From Table 1 |
$178.9 |
$1.56 |
$264.2 |
$328.0 |
$238.7 |
$2.14 |
$248.6 |
$168.6 |
| Discontinued operations, net of tax |
(8.0) |
(0.07) |
— |
— |
(47.0) |
(0.42) |
— |
— |
| Cumulative effect of change in accounting principle, net of tax |
— |
— |
— |
— |
(0.9) |
(0.01) |
— |
— |
| Vertac matters |
13.2 |
0.11 |
— |
20.3 |
70.5 |
0.63 |
— |
108.5 |
| ABL settlement |
8.4 |
0.07 |
— |
13.0 |
— |
— |
— |
— |
| Asbestos reserve adjustment, net of insurance settlements |
(2.1) |
(0.02) |
— |
(3.2) |
13.0 |
0.12 |
— |
20.0 |
| Legal accruals and settlements(3) |
1.8 |
0.02 |
— |
2.8 |
4.3 |
0.04 |
(2.0) |
6.6 |
| Severance and restructuring costs |
18.4 |
0.16 |
28.4 |
28.4 |
13.7 |
0.12 |
21.1 |
21.1 |
| Asset impairments/charges and accelerated depreciation |
9.4 |
0.08 |
14.4 |
— |
5.4 |
0.05 |
8.3 |
3.2 |
| Loss on debt prepayment, net, and write-off of debt issuance costs |
— |
— |
— |
— |
7.6 |
0.07 |
— |
11.7 |
| Gain on asset dispositions |
(4.6) |
(0.04) |
(4.6) |
(7.1) |
(0.9) |
(0.01) |
— |
(1.4) |
| Loss on sale of FiberVisions and investment dilution(5) |
2.5 |
0.02 |
— |
2.5 |
13.3 |
0.12 |
— |
13.3 |
| Other(4) |
4.6 |
0.04 |
3.8 |
7.0 |
3.1 |
0.03 |
0.4 |
4.2 |
| Subtotal adjustment items(5) |
43.6 |
0.37 |
42.0 |
63.7 |
82.1 |
0.74 |
27.8 |
187.2 |
Tax adjustment to the ongoing effective tax
rate(6) |
(52.6) |
(0.45) |
— |
— |
(183.5) |
(1.65) |
— |
— |
| Ongoing Operations(1) |
$169.9 |
$1.48 |
$306.2 |
$391.7 |
$137.3 |
$1.23 |
$276.4 |
$355.8 |
(Unaudited)
Table 4
Reconciliation to Ongoing Operations By Business Segment |
THREE MONTHS
ENDED DEC. 31, 2007 |
| (Dollars in millions) |
Paper Technologies & Ventures Group |
Aqualon
Group |
Corporate
Items / FiberVisions |
Total
Hercules |
| Profit from Operations |
$24.8 |
$42.8 |
($10.7) |
$56.9 |
| Severance, restructuring and other exit costs |
3.2 |
1.5 |
1.1 |
5.8 |
| Asset impairments/charges and accelerated depreciation |
— |
— |
3.5 |
3.5 |
| Other(4) |
0.4 |
— |
2.3 |
2.7 |
| Subtotal adjustment items |
3.6 |
1.5 |
6.9 |
12.0 |
Profit from Ongoing Operations(1) |
$28.4 |
$44.3 |
($3.8) |
$68.9 |
(Unaudited)
Table 5
Reconciliation to Ongoing Operations By Business Segment |
THREE MONTHS
ENDED DEC. 31, 2006 |
| (Dollars in millions) |
Paper Technologies & Ventures Group |
Aqualon
Group |
Corporate
Items / FiberVisions |
Total
Hercules |
| Profit from Operations |
$23.8 |
$40.9 |
($11.0) |
$53.7 |
| Severance, restructuring and other exit costs |
2.3 |
0.1 |
2.1 |
4.5 |
| Asset impairments/charges and accelerated depreciation |
(0.3) |
— |
4.5 |
4.2 |
| Legal accruals and settlements(3) |
— |
— |
0.1 |
0.1 |
| Other(4) |
0.1 |
— |
0.1 |
0.2 |
| Subtotal adjustment items |
2.1 |
0.1 |
6.8 |
9.0 |
Profit from Ongoing Operations(1) |
$25.9 |
$41.0 |
($4.2) |
$62.7 |
(Unaudited)
Table 6
Reconciliation to Ongoing Operations By Business Segment |
TWELVE MONTHS
ENDED DEC. 31, 2007 |
| (Dollars in millions) |
Paper Technologies & Ventures Group |
Aqualon
Group |
Corporate
Items / FiberVisions |
Total
Hercules |
| Profit from Operations |
$113.6 |
$199.0 |
($48.4) |
$264.2 |
| Severance, restructuring and other exit costs |
5.1 |
3.7 |
19.6 |
28.4 |
| Asset impairments/charges and accelerated depreciation |
0.2 |
— |
14.2 |
14.4 |
| Gain on asset dispositions |
— |
— |
(4.6) |
(4.6) |
| Other(4) |
0.4 |
— |
3.4 |
3.8 |
| Subtotal adjustment items |
5.7 |
3.7 |
32.6 |
42.0 |
Profit from Ongoing Operations(1) |
$119.3 |
$202.7 |
($15.8) |
$306.2 |
(Unaudited)
Table 7
Reconciliation to Ongoing Operations By Business Segment |
TWELVE MONTHS
ENDED DEC. 31, 2006 |
| (Dollars in millions) |
Paper Technologies & Ventures Group |
Aqualon
Group |
Corporate
Items / FiberVisions |
Total
Hercules |
| Profit from Operations |
$80.8 |
$187.4 |
($19.6) |
$248.6 |
| Severance, restructuring and other exit costs |
10.5 |
4.1 |
6.5 |
21.1 |
| Asset impairments/charges and accelerated depreciation |
3.1 |
— |
5.2 |
8.3 |
| Legal accruals and settlements(3) |
1.1 |
— |
(3.1) |
(2.0) |
| Other(4) |
0.1 |
— |
0.3 |
0.4 |
| Subtotal adjustment items |
14.8 |
4.1 |
8.9 |
27.8 |
Profit from Ongoing Operations(1) |
$95.6 |
$191.5 |
($10.7) |
$276.4 |
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions) (Unaudited)
| Table 8
|
DEC. 31 |
Dec. 31 |
|
2007 |
2006 |
| Assets |
|
|
| Current assets |
|
|
| Cash and cash equivalents |
$ 116.5 |
$ 171.8 |
| Accounts receivable, net |
366.8 |
326.6 |
| Inventories |
224.0 |
210.6 |
| Income tax receivable |
20.2 |
170.8 |
| Other current assets |
86.8 |
104.7 |
| Total current assets |
$ 814.3 |
$ 984.5 |
| Property, plant and equipment, net |
660.0 |
600.4 |
| Other assets |
1,204.1 |
1,223.6 |
| Total assets |
$2,678.4 |
$2,808.5 |
| Liabilities and Stockholders' Equity |
|
|
| Current liabilities |
|
|
| Accounts payable |
$ 222.0 |
$ 205.3 |
| Other current liabilities |
258.5 |
265.0 |
| Vertac obligations |
20.0 |
123.5 |
| Current debt obligations |
33.7 |
35.8 |
| Total current liabilities |
$ 534.2 |
$ 629.6 |
| Long-term debt |
762.3 |
959.7 |
| Other liabilities |
881.8 |
963.6 |
| Total liabilities |
$2,178.3 |
$2,552.9 |
| Minority interests |
22.1 |
12.7 |
| Total stockholders' equity |
478.0 |
242.9 |
| Total liabilities and stockholders' equity |
$2,678.4 |
$2,808.5 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions) ((Unaudited)
| Table 9
|
TWELVE MONTHS
ENDED DEC. 31 |
|
2007 |
2006 |
| Cash Flows from Operating Activities: |
|
|
| Net income |
$178.9 |
$238.7 |
| Adjustments to reconcile net income to cash provided by operations: |
|
|
| Depreciation and amortization |
110.0 |
95.3 |
| Deferred income tax provision and income taxes payable |
153.2 |
(282.9) |
| Impairment charges |
— |
3.2 |
| Investment dilution and loss on sale of 51% interest in FiberVisions |
2.5 |
13.3 |
| Other noncash charges and credits |
2.1 |
1.6 |
| Working capital, net(7) |
(123.8) |
106.2 |
| Asbestos-related assets and liabilities, net |
50.4 |
37.1 |
| Pension and postretirement benefits |
(55.7) |
(7.9) |
| Non-current assets and liabilities, net |
(17.7) |
(23.8) |
| FiberVisions assets and liabilities held for sale |
— |
(7.9) |
| Net cash provided by operating activities |
299.9 |
172.9 |
| Cash Flows from Investing Activities: |
|
|
| Capital expenditures |
(118.3) |
(93.6) |
| Proceeds from sale of 51% interest in FiberVisions, net of transaction costs |
(1.2) |
17.8 |
| Acquisitions and investments, net |
(16.5) |
(29.4) |
| Proceeds from fixed asset disposals / Other |
18.3 |
11.1 |
| Net cash used in investing activities |
(117.7) |
(94.1) |
| Cash Flows from Financing Activities: |
|
|
| Long-term debt issued by FiberVisions, net of issuance costs |
— |
83.7 |
| Long-term debt proceeds |
1.2 |
22.0 |
| Debt repayments and change in short term debt |
(204.8) |
(136.7) |
| Repurchase of common stock |
(46.1) |
— |
| Dividends paid |
(5.7) |
— |
| Proceeds received from the exercise of stock options / Other |
7.8 |
42.6 |
| Net cash (used in) provided by financing activities |
(247.6) |
11.6 |
| Effect of exchange rate changes on cash |
10.1 |
4.1 |
| Net (decrease) increase in cash and cash equivalents |
(55.3) |
94.5 |
| Cash and cash equivalents at beginning of period |
171.8 |
77.3 |
| Cash and cash equivalents at end of period |
$116.5 |
$171.8 |
NOTES:
(1) Net Income from ongoing operations, profit from ongoing operations, EBIT and EBITDA, wherever used herein, are non-GAAP financial measures. The ongoing operations include Paper Technologies and Ventures, the Aqualon Group and FiberVisions. Results from ongoing operations exclude impairment charges for certain facilities within these businesses which will have no further operating impact, accelerated depreciation charges, severance, restructuring and other exit costs, and legal accruals, settlements and other gains and losses related to divested businesses. It also excludes the impact of the prepayment and refinancing of long-term debt. Please refer to Tables 2, 3, 4, 5, 6 and 7 for the reconciliation of reported to ongoing operations for the quarter and year ended December 31, 2007 and 2006.
EBIT is calculated as net income (loss) before income taxes plus interest and debt expense. EBITDA is calculated as net income (loss) before income taxes plus interest and debt expense, depreciation and amortization, net of amortization of debt issuance costs.
EBIT and EBITDA are measures commonly used by the capital markets to value enterprises. Interest, taxes, depreciation and amortization can vary significantly between companies due in part to differences in accounting policies, tax strategies, levels of indebtedness and interest rates. Excluding these items provides insight into the underlying results of operations and facilitates comparisons between Hercules and other companies. In addition, EBITDA is considered a reasonable approximation of gross cash flow and is one of the measures used for determining debt covenant compliance. Management believes that EBIT and EBITDA information is useful to investors for these reasons. These measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.
(2) Net sales by segment have been realigned to the current organizational structure.
(3) These accruals and settlements exclude asbestos, Vertac litigation and the ABL settlement.
(4) Other primarily includes gains and losses related to formerly divested businesses and other costs.
(5) Adjustment items have been tax effected at the U.S. federal statutory tax rate of 35% for 2007 and 2006, except the loss on the sale of FiberVisions and investment dilution. Valuation allowances have been established on these capital losses. Additionally, the related earnings per share impacts are based upon diluted shares totaling 114.2 million and 113.1 million for the three months ended December 31, 2007 and 2006, respectively, and 115.1 million and 111.3 million for the years ended December 31, 2007 and 2006, respectively.
(6) For the years ended December 31, 2007 and 2006, these tax adjustments primarily represent the total tax benefit realized and recorded by the Company from the favorable resolution of the IRS federal income tax audits for the years 1993 to 2003.
(7) Includes $124.5 million paid to the United States in settlement of the Vertac judgment in the year ended December 31, 2007, partially offset by an accrual of $20.0 million for additional response costs including accrued interest.